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I am a tech worker. My employer offers group LTD that covers 60% of my salary? I went out in the market to get an individual policy but my agent cannot find a company who will underwrite a policy with coverage greater than 10% of my salary.

This defeats the whole purpose because if I become unemployed or change jobs I will have only 10% coverage (might as well be zero) which is the first thing I set out to protect myself against.

Do people here know how to find a good company who will issue me a individual LTD policy with 60-70% of my salary and not demand that I reject my employer's group LTD plan?

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    If they agreed to cover 60% of your salary, you'd have a total of 120% coverage. Then you would be worth more disabled than abled, and the insurance companies would be worried about the moral hazard. – stannius Aug 28 '15 at 15:37
  • yes i understand this. why don't they offer a provision like if someone already has group coverage, it becomes primary and the individual policy becomes secondary and will provide coverage uptp 70% of salary? that way if someone does not have group coverage, the individual coverage extends to 70% – Steve Aug 28 '15 at 16:38
  • and the other thing is that no one is going to injure themselves to life off of DI which you may or may not even get as no policy is going to give a pay out to self-caused injury – Steve Aug 28 '15 at 16:40
  • Can you add a country tag? Social Security disability coverage would be a partial answer, but only if you are in the US. – JoeTaxpayer Aug 28 '15 at 18:38
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    I was in the middle of buying an individual LTD policy when I got offered a full time job with LTD coverage. The insurance company changed their offer and would not give me more than about 10%. There's not much you can do about it as far as I could find at the time. If it's really important to you, you could look into turning down the work-offered coverage. – stannius Aug 31 '15 at 15:33
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Look for an individual long-term disability policy that can do a temporary group plan offset in your policy and that otherwise converts to the full coverage desired when you cease to be a group member (i.e. you resign from the job or are terminated.)

Essentially, such an individual LTD policy acknowledges you may receive benefits as a member of the existing group LTD plan, yet enhances its benefits. The individual plan would only top up (as opposed to double up) your disability benefits while you are still a group member, and upgrades when you are no longer a member.

I was in a similar situation some years ago. In my case, I had already purchased an individual LTD policy when working as a self-employed IT contractor; I had no group coverage. But, one of the features I selected for the policy was an annual "future income option", guaranteeing I could buy more coverage (without any further medical) as my income would increase. I took advantage of it from time to time since I was younger and my income was growing quickly.

A couple of contract gigs later, I found myself back in a full-time job. The employer enrolled me in their group LTD plan, which was inferior to my individual plan in a number of respects (the definition of disability, wasn't "own occupation" coverage, etc.), so I maintained my individual policy alongside. While employed full time, I was again offered the opportunity to purchase additional coverage based on higher income. When I applied for increased benefits, the application form had this question:

If you have group coverage, would you accept the addition of a group offset amendment, if required, due to your group coverage in force? Yes ___ No ___.

Essentially, I needed to accept the group offset amendment which meant, in effect, "We will increase your individual LTD policy benefits, but as long as you are part of your group LTD plan, those benefits will pay first and reduce additional benefits from your individual plan — until you are no longer part of the group."

When I left that job years later, I contacted my LTD insurer for another increase and also informed them I was no longer covered by the group LTD plan. The group offset amendment was removed from my policy (I was issued a "Policy Change Rider" confirming that) and so all the added benefits I'd applied for converted to "full" benefits on the policy no longer subject to an offset.

So, look for an individual LTD policy that will acknowledge (a) yes, you are part of a group policy, and this means "offsetting", but (b) more important is that you need a guarantee from the individual LTD policy that when you cease to be a member of the group LTD plan, then your benefits in the individual policy convert to what you previously had in both plans combined.

Ask your agent if he inquired about group offsets specifically. IMHO, if your agent doesn't specialize in individual LTD insurance and instead is a "one stop shop", you should consider talking to an agent who knows LTD inside and out.

  • Related: How Does a Group Disability Insurance Offset Work? ... that page is about Canada, but I expect U.S. LTD insurers are also familiar with the concept, perhaps having established it in the first place. – Chris W. Rea Sep 1 '15 at 3:06
  • could you share contact info of your agent? I think my agent is not good enough and I have tried quite a bit to find a good one. – Steve Sep 1 '15 at 4:47
  • I'm in Canada and my agent is too; no use to you, sorry! I can tell you though that my policy was issued by the then-largest providers of individual disability insurance policies shortly after they combined in this deal. The Canadian side of the business was later sold to a big Canadian bank. Do some digging and I'm sure you'll find an agent that deals with whatever the U.S. business is called now, and who their competition are. – Chris W. Rea Sep 1 '15 at 13:09
  • Perhaps, as I did, you might look into the equivalents of what was called in my case the "future income option", which is the part of my policy that guaranteed I could increase coverage after the policy was first issued (without another medical). Accepting a low top-up now with the remainder being offset might not be a bad arrangement, provided you have that guarantee. Note that when you do apply for such an increase, proof of new income will be required. I had to provide tax returns & bank statements to prove what I earned as a self-employed consultant exceeded what I'd been making full-time. – Chris W. Rea Sep 1 '15 at 13:20
  • @Steve Finally, I strongly urge you to talk all this over with a licensed, qualified professional. Sorry I can't recommend one. Best of luck. – Chris W. Rea Sep 1 '15 at 13:22
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Going through the company does put you at risk if your employment ends.

The last time I switched companies I was offered via COBRA the ability to extend the LTD coverage for an additional 18 months. Because the new company had a similar plan, there was no need to investigate all the costs and provisions of the COBRA LTD.

You could check with HR to see what is offered to departing employees. I don't see a huge risk of the next company not offing LTD. Every company I have worked for in the last 30 years has offered some sort of LTD plan.

That 60% level seems to be normal for company plans. It would seem to be expensive to get much more than that, because of the risk of stretching out the disability time because 90% for nothing is a good deal.

One thing to consider regarding the 60% percentage is the tax impact of disability payments. According to the IRS in general if you pay the premium the money is tax free, which means you don't need 100% replacement.

Question: Is the long-term disability I am receiving considered taxable?

Answer:

You must report as income any amount you receive for your disability through an accident or health insurance plan paid for by your employer:

  • If both you and your employer have paid the premiums for the plan, only the amount you receive for your disability that is due to your employer’s payments is reported as income.
  • If you pay the entire cost of a health or accident insurance plan, do not include any amounts you receive for your disability as income on your tax return.
  • If you pay the premiums of a health or accident insurance plan through a cafeteria plan, and you did not include the amount of the premium as taxable income to you, the premiums are considered paid by your employer, and the disability benefits are fully taxable.
  • If the amounts are taxable, you can submit a Form W-4S (.pdf), Request for Federal Income Tax Withholding From Sick Pay, to the insurance company, or make estimated tax payments by filing Form 1040-ES (.pdf), Estimated Tax for Individuals.
  • Group plans have a number of unattractive features, the biggest being lack of portability. The OP seems interested in getting an individual policy not necessarily to get a higher total percentage covered, but to make sure he acquires portable and enhanced coverage (e.g. "own" vs. "any" occupation) while still insurable. LTD gets ridiculously expensive or else impossible to get once you age and develop health issues. – Chris W. Rea Sep 1 '15 at 2:56
  • look at the last part of the question: Do people here know how to find a good company who will issue me a individual LTD policy with 60-70% of my salary and not demand that I reject my employer's group LTD plan?. The OP wants to have both plans the company plan and the external plan. Nobody will allow that. That would mean that they would make more by not working. – mhoran_psprep Sep 1 '15 at 10:33
  • Read his comments, too. There's a difference between rejecting the employer LTD plan, and integrating with it with something like an offset while the group plan remains in force. – Chris W. Rea Sep 1 '15 at 12:57

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